It wasn’t that long ago that the media was predicting another property boom following the remarkable turn in Australia’s housing markets, with the rebound in house prices considerably stronger than many expected.

So what’s ahead for our economy?

We all know Australia is going into recession, but how bad will it be and how long will it last?

The International Monetary Fund has forecast that the Australian economy will contract by 6.7 per cent in 2020 due to the coronavirus lockdown.

However, the IMF expects the domestic economy to rebound by 6.1 per cent in 2021, assuming that measures to contain the virus are successful.

When the economy does recover, which countries will see the largest growth? That’s what the following infographic from Visual Capitalist shows.

The International Monetary Fund’s economic forecasts are based on expectations that the coronavirus will be contained in the second half of 2020 and that there will be no second wave of infection, but they have warned of the potential for a second wave of the coronavirus if a vaccine is not developed.

The baseline is broadly similar to market expectations, with a steep drop in near-term activity, double-digit unemployment, and recovery starting as health restrictions are rolled back.

Even with an unprecedented easing of monetary and fiscal policy, uncertainty is extreme because economic recovery depends on both the path of the virus and restoring household and business confidence.

The economy will contract very sharply in the near term.

As flagged in Governor Lowe’s speech, the RBA forecasts a very large fall in activity of 10% over the first half of 2020 with unemployment peaking at 10% in Q2.

This forecast of a sharp contraction and double-digit unemployment was widely expected.

Coronavirus containment measures have seen consumer spending and business investment fall sharply as people have lost their job, restrictions have limited spending and firms sought to conserve cashflow amid the steep fall in demand.

In addition, travel bans have seen a collapse in tourism and education exports.

The RBA notes that while it expects employment to fall 8%, or by 1 million workers, there will be a sharper 20% fall in total hours worked.

This means there will be an extremely large hit to household income even with extensive government handouts and its wage subsidy scheme, which will weigh on consumer spending during the recovery.

The bank also warns that while it expects unemployment to rise to 10% it is uncertain about how many people will drop out of the labour force in this unusual period.

What about house prices?

What will happen to our property markets will depend upon how soon our economy picks up, the level of unemployment reached and importantly the level of consumer confidence coming out of our recession.

At the same time, with banks extending borrowers a lifeline in the form of deferred mortgage payments, there is no forced selling at present and this plus the lack of new properties being listed for sale is underpinning property values.

Fortunately, our Federal government has learned a lot about handling monetary and fiscal policy during economic downturns resulting in the slashing of interest rates, the introduction of Quantitative Easing and our spending $300Billion plus to build a bridge to get us through this and will now doubt spend a lot more to kickstart the economy.

At the same time, the State governments have introduced their own support and stimulus packages.

Clearly our housing markets won’t be immune to the Coronavirus economic fallout, but the impact on property values will depend on how long it will take to contain the virus.

Transaction levels are likely to be significantly impacted over the next two months, particularly with restrictions in place limiting people’s ability to leave their homes.

But this doesn’t mean property values will plummet.

ANZ Bank has amended its forecasts citing weaker household income, sharply rising uncertainty for households, reduced population growth, and much weaker investor demand (given the collapse in the rental market) as some of the factors that will depress our housing markets over the next year or so.

ANZ suggest that while the deferral of home loan repayments will help prevent forced sales, the decline in demand will push prices down around 10% (peak-to-trough) on average across the capital cities.

ANZ anticipate prices will bottom out in mid-2021, before a modest recovery on improved affordability.

Source: ANZ Bank

I don’t disagree.

However the problem with making these type of forecast is lumping all properties together. There is not one Australian property market.

In fact, there’s not one Sydney or Melbourne property market either.

There are markets within markets dependent upon price point, type of property and geographic location.

So which part of Australia’s property market is predicted to fall in value by 10%?

Is it all properties? That’s unlikely.

Is it median house prices? Or will certain types of property fall in value much more than the other than others?

Not all property market will be affected equally,

And while I don’t disagree that “overall” our property market could easily fall 10% in the short term:

“Investment grade” properties and A grade (above average) homes could fall in value by around -5%

B grade (average) homes could fall in value by up -10-15%,

C grade (less than perfect) will be the hardest hit as there will be a flight to quality.

But this will be on a on very low levels of transactions and the pace of recovery from that point will depend on the state of the wider economy.

The worst affected residential markets will be:

Apartments in high-rise towers – in fact this is these properties are likely to be out of favour for quite some time.

Off the plan apartments and poor quality investments stock (as opposed to investment-grade) apartments, particularly those close to universities.

Outer suburban new housing estates house and land packages, where young families are likely to have overextended themselves financially and with many people will be out of work for a while

Properties in the blue-collar areas.

But this will be on a on very low levels of transactions and he pace of recovery from that point will depend on the state of the wider economy.

The worst affected market will be the more expensive properties that will suffer because of the stock market crash.

And properties in the blue-collar areas and new housing estates where young families are likely to have overextended themselves financially and with many people will be out of work for a while.

On the upside, households and property investors whose incomes remain stable and secure will be able to take advantage of historically low interest rates.

This should support a return to stronger levels of price growth in the medium term.

The following chart shows how Australian residential property has historically fared well against negative economic shocks

In fact, as an asset class, bricks and mortar has performed exceptionally well during previous economic shocks.

What the above and the following charts show is that negative economic shocks do not necessarily lead to severe declines in property prices.

Property does not show the same volatility of shares during a downturn nor the same decline in values because it is used to living and therefore not a speculated upon the shares.

Additionally it cannot be bought or sold as quickly as shares meaning price movements are not as volatile.

This time round, with the banks giving mortgage deferments or holidays, it is unlikely that we will have a large number of forced or mortgagee sales that could undermine market confidence.

Some areas will suffer more

As I said, moving forward some suburbs are likely to only experience minimal falls in value while others will suffer more significantly.

Just think about the typical demographic who bought in the new housing estates in the outer suburbs of our capital cities.

Residents there are typically at the same stage of their life cycle, getting their foot on the property ladder, setting up their families, paying a large mortgage and carrying significant credit card debt.

These are the types of locations where residents are more likely to suffer mortgage stress, and if people need to sell up, at a time when their neighbours are in the same boat, property values could drop significantly.

The same is true for the many investors who have bought cookie cutter apartments in and around our CBDs and who now have minimal or even negative equity in their properties.

With few new investors buying this type of property, CBD apartments are likely to fall in value significantly.

On the other hand, the demographics of our established middle ring capital city suburbs are very different as they are populated by a range of families at different stages in their lifestyle.

Some residents would have bought their property 30 to 40 years ago and paid off their mortgage a long time ago.

Others may have purchased the property 15 years ago and paid off a significant portion of the debt while living in the same street there would a few newer residents who have significant level of debt against their homes.

In these suburbs demand currently demand is higher than the undersupply of properties available and values in the suburbs are likely to hold up well.

The following chart suggests that Hobart will be more affected than other capital cities by the strict social distancing measures imposed to prevent spread of COVID-19.

At the other extreme in the ACT, where employment is more concentrated amongst public Inspiration, employment and incomes not as broadly affected.

Supply and demand

For the last few decades, continued strong population growth has been a key driver supporting our property markets.

Australia’s population was growing by around 360,000 people per annum, meaning we needed to build around 170 to 180,000 new dwellings each year to accommodate all the new households.

Since 60% of our growth is dependent on immigration, in the short-term population growth will fall, but they should increase again as soon as overseas immigrants will be allowed to come to our shores.

In the meantime, the oversupply of dwellings in many Australian locations is now dwindling and there are very few new large projects on the drawing board.

Considering how long it takes to build new estates or large apartment complexes, we’re going to experience an undersupply of well-located properties in our capital cities in the next year or two.

In the next few months supply will be constrained because of very few vendors are putting their properties on the market.

Think about it… unless you really had to sell you wouldn’t place your property on the market today would you?

The lack of good stock at a time when there is still reasonable demand by purchasers looking to take advantage of the opportunities the market presents means it is unlikely house prices will fall dramatically.

What about affordability?

With interest rates at historic lows, housing affordability is as cheap as it ever has been.

I’m not saying the properties are cheap – they never have been if you want to live in great locations in major world class cities.

But for those first home buyers wanting to get a foot on the property ladder, or established home buyers wanting to upgrade, or investors looking to hold onto a property, the holding costs are less than they ever have been.

And the RBA has declared that interest rate will not increase until unemployment is back to within their preferred range of around 4.5%.

They have said this will be unlikely to occur in the next three years.

In other words we are in unprecedented times where we don’t have to worry about rising interest rates the foreseeable future.

House price forecasts

In the medium term, property values will be linked to the extent that quarantine measures affect income, employment, borrowing capacity and credit availability.

Some sectors of our economy and housing markets will be affected more than others.

The largest and most direct industry shocks from the coronavirus are expected in:-

Tourism, local restrictions will ease up before and overseas travel restrictions may take some time to lift;

Hospitality, where social distancing leads to a decline in café, bar and restaurant patronage;

Education, due to fewer foreign students being able to travel;

Retail, which will be dragged down by low consumer confidence levels; and,

Recreation, theatres, cinemas and art galleries have closed down.

However, I’m comfortable with the underlying long term fundamentals supporting our property markets int he medium to long term. Let’s look at a couple of them…

Population growth

As I said, in the short-term population growth will fall, but this should increase again as soon as overseas immigrants will be allowed to come to our shores.

Australia is likely to be seen as one of the Safehaven’s in the world moving forward.

Declining housing supply

The oversupply of dwellings in many Australian locations is now dwindling and there are very few new large projects on the drawing board.

Considering how long it takes to build new estates or large apartment complexes, we’re going to experience an undersupply of well-located properties in our capital cities in the next year or two.

Interest rates are low and will go down further

The prevailing low interest rate environment is making it easier to own a home, either as an owner occupier or investor.

In fact, it’s never been cheaper for investors to own a property with the “net outlay” – the out-of-pocket expenses – being the lowest they’ve been for decades considering how cheap finance is today.

Smaller households are becoming the norm

Sure many people live in multigenerational household, but pretty soon Millennials will make up one third of the property market and their households tend, in general, to be smaller as are the households of the booming 65+ year old demographic.

More one and two people households means that, moving forward, we will need more dwellings for the same number of people.

More renters

Soon 40% of our population will be renters, partly because of affordability issues but also because of lifestyle choices.

The government isn’t providing accommodation for these people. That’s up to you and me as property investors.

First home buyers are back

First home buyers are back with a vengeance, in part thanks to the government’s new scheme to encourage them, but also because of cheap finance and rising property values.

As opposed to established homebuyer who have a “trade in” that is increasing in value, if first home buyers wait to get into the market they’re finding the market moving faster than they can save, so they’re hopping on board the property train as quickly as they can.

The underlying fundamentals are strong

Sure our economy is taking a hit and the share market is volatile, but our property markets are underpinned by the fact that 70% of property owners are home owners who are there for the long term.

They’re not going to sell up their homes – they’d rather eat dog food than give up their homes.

And the Australia’s banking system is strong, stable and sound.

Even though a few home buyers have overcommitted themselves financially, there should be no real concern about household debt because, in general, it is in the hands of those who can afford it.

There is currently a very low rate of mortgage default of mortgage to increase.

As the community starts to become more concerned about the economic impact of the corona virus, it is likely that there will be a flight to quality assets, and bricks and mortar have always stood the test of time.

In other words, the share market volatility will make some investors look to real estate as an alternative secure investment vehicle underpinned by 7 million homeowners in Australia.

Since bottoming out after the election in May 2019, Sydney dwelling values have recovered and are up 14.3% over the past year.

Sydney house values increased by 0.3% last month April 2020 (+15.8% over the last year)

Sydney unit values increased 0.6% last month April 2020 (+11.0% over the last year.)

The recovery Sydney was experiencing was most concentrated across the premium end of the housing market where values were previously falling more rapidly.

At the other end of the market, investors and home buyers had already abandoned the off the plan apartment sector for many reasons including concerns about construction standards.

And many of those who purchased off the plan a few years ago are now going to have trouble settling with valuations coming in on completion at well below contract price at a time when banks are more reluctant to lend on these properties.

Policies restricting open homes and on-site auctions have recently been lifted, which could see activity across the local market pick up, however, some downside risk remains due to Sydney’s exposure to overseas migration as a source of housing demand as well as the likelihood that consumer confidence will remain at low levels.

Rental markets are likely to see weaker conditions due to the reduction in migration rates and less student demand, as well as a short term rental stock transitioning into the permanent rental pool.

Sydney rents were down 0.7% over the month, dragging the gross rental yield to a new record low of 2.9%.

While A grade homes and investment grade properties are likely to fall a little (5- 10%) moving forward, this is a great time for cashed-up investors and homebuyers planning to upgrade to buy a property considerably cheaper than they would have had to pay a few months ago, and for considerably less than they will have to pay this time next year.

B grade (secondary) dwellings may fall in value by 10-15% and C grade properties are likely not to sell at all.

Sure there are fewer good properties for sale at the moment, and almost all the good ones are for sale off market, however if you’d like to know a bit more about how to find these investment gems give the Metropole Sydneyteam a call on 1300 METROPOLE or click here and leave your details.

Before Coronavirus hit our markets, Melbourne property prices were surging with dwelling values up 12% higher to reach new highs.

However, Melbourne experienced the first month on month fall in home values since May last year.

Melbourne house values dropped -0.3% last month (+12.4% over the last year.)

Melbourne unit values increased 0.1% last month (+11.5% over the last year.)

The monthly fall comes after a strong rebound in housing values since June last year which saw Melbourne dwelling values reach a new record high in February.

Melbourne has relatively high exposure to overseas migration which is likely to be one of the factors behind Melbourne’s weakness, along with the policies restricting on-site auctions and open homes.

Melbourne rental rates were also down over the month, falling by half a percent.

Rental markets are likely to experience weaker conditions relative to home values due to higher supply of rental properties, and less demand.

A grade homes and investment grade properties in Melbourne are likely to fall a little (5- 10%) moving forward.

B grade (secondary) dwellings may fall in value by 10-15% and C grade properties are likely not to sell at all.

Like most housing markets in Australia, dwelling markets across Victoria now face new challenges in the wake of Coronavirus.

The chart below shows Melbourne’s population increase attributable to net overseas migration in the year to June 2019, alongside the four latest four quarter average of the workforce employed in accomodation and food services and arts and recreation services.

Clearly these areas of employment are likely to suffer more as we are cocooned by coronavirus.

At Metropole we’re finding that strategic investors with a long-term view and homebuyers looking to upgrade are still in the market, picking the eyes out of the off market properties.

It’s likely that they see the long-term fundamentals as Melbourne rates as one of the 10 fastest growing large cities in the developed world,.

Melbourne’s population was forecast to increase by around 10% in the next 4 years.

Clearly this will slow down now, with restricted borders protecting Australia, but once we “cross the bridge” Melbourne will remain one of the most liveable cities in the world.

Brisbane Property Market Forecast

Understandably, the coronavirus crisis is creating uncertainty for those interested in the Brisbane property market, however Brisbane home values continued to edge higher in April, up 0.3% over the month.

Looking back over the last few years Brisbane’s property downturn in 2018-9 was quite shallow compared to the big two capital cities and following its recent upturn property values growth has slowed.

However, Brisbane property prices are still about 55% of Sydney’s while household incomes are only around 12% lower, underpinning the value of Brisbane real estate.

Brisbane house values increase 0.3% last month – April 2020 (+4.2% over the last year.)

Brisbane unit values increased 0.5% last month – April 2020 (+2.3% over the last year.)

Rental markets have started to see some weakness though, with rents down 0.4% in April, reflecting a rise in rental supply as well as a reduction in demand.

But what’s going to happen to the Brisbane housing market moving forward?

With less reliance to overseas migration as a source of housing demand and the largest number of interstate migrants, the Queensland market may be less exposed to downwards pressure in housing values.

Of course Queensland is highly exposed to the Chinese economy, in particular tourism, education and foreign property purchases.

On the flipside, once travel bans are lifted, the Queensland economy and property market should benefit from more local travel by Australians as it is likely that overseas travel will still be restricted.

Not all Brisbane property will be impacted equally.

Clearly there is not one Queensland property market.

Regional Queensland is likely to suffer more while the Brisbane real estate market is underpinned by multiple pillars, and therefore likely to suffer less than areas like the Gold Coast and Sunshine Coast or regional Queensland.

But even Brisbane does not have ‘one’ property market.

Based on the predicted pace of the post-recession recovery, I would expect the pandemic to have a more limited and shorter-lived impact on house prices than either the early-1990s recession or the Global Financial Crisis.

Just to make things clear…I have confidence in the long term future of the Sunshine State capital.

Brisbane is one of the world’s great cities.

Liveability, affordability, scale and future economic prospects all suggest that Brisbane is a market where you can confidently buy.

While it’s true that once we come through the Coronavirus pandemic Brisbane is likely to be the one of the best performing property market over the next few years, there is not one Brisbane property market.

While some locations in Brisbane have strong growth potential, and the right properties in these locations will make great long term investments, certain submarkets should be avoided like the plague.

The Queensland housing market now faces new challenges in the wake of coronavirus.

The Brisbane market has the second highest exposure of the capital cities to accommodation and food, and arts and recreation services

.

In the long term, Brisbane’s economy is being underpinned by major projects like Queen’s Wharf, HS Wharf, TradeCoast, Cross River Rail, the second airport runway and the Adani Coal Mine, but jobs growth from these won’t really kick-off for a few more years.

There is minimal further downside for the Brisbane housing market and now is an excellent time to ride the next property wave in Brisbane

Our Metropole Brisbane team has noticed a significant increase in local consumer confidence with many more homebuyers and investors showing interest in a property.

At the same time we are getting more enquiries from interstate investors there we have for many, many years.

Canberra Property Market Forecast

Canberra’s property market has been a “quiet achiever” with dwelling values having reached a new peak after growing 4.7% over the last year .

Considering a large percentage of Canberra population is employed by the government or industries supporting the public sector, Canberra’s property market is less likely to be affected by the upcoming recession than our other capital cities.

But the current excessive Land Tax in Canberra is keep investors away from the Canberra property market.

Perth Property Market Forecast

It looked like the Perth market was finally starting to pick up.

Yet despite renewed growth, the median house value across Perth remains the lowest of any capital city.

Perth home values have avoided a fall for six consecutive months which is the longest run of growth since the market peaked in mid-2014.

The April figures showed a 0.2% lift in values over the month taking the market 1.1% higher over the year to date.

Perth house values increased 0.3% last month – April 2020 (-2.5% over the last year.)

Perth unit values fell -0.2% last month – April 2020 (-3.0% over the last year.)

Local rents also edged higher, rising 0.1% in April with Perth the only capital city to avoid a drop in rents over the month.

Despite the positive monthly reading for values and rents, it’s clear that activity has reduced.

New listing numbers are down about 46% compared with a year ago and our estimate of buyer numbers has more than halved over the month, suggesting buyers and sellers have retreated to the sidelines.

Hobart Property Market Forecast

Hobart was the darling of speculative property investors and the best performing property market in 2017- 8, and while dwelling values reached a record high in February 2020, its boom is now over and values have fallen slightly.

It’s likely the Hobart market will continue to lose its momentum over the year as its local economy is very dependant on tourism which is a sector of the economy that will suffer more than most.

Hobart house values fell -0.2% last month – April 2020 (+6.1% over the last year.)

Hobart unit values increased 0.5% last month – April 2020 (+1.0% over the last year.)

Adelaide Property Market Forecast

Adelaide was one of the few capital city markets where the pace of capital gains in April was higher than six-month average.

The rise in values was broadly based, with each of Adelaide’s sub-regions recording a rise in home values over the month, led by Adelaide West where values were nine-tenths of a percent higher in April.

New listing numbers were down 38% compared with a year ago, reflecting a substantial drop in advertised supply levels, and rental markets softened, with rents slipping 0.1% in April.

Adelaide house values increased 0.4% last month – April 2020 (+1.3% over the last year.)

Adelaide unit values increased 0.7% last month – April 2020 (+2.5% over the last year.)

However, Adelaide will not be immune to the coronavirus led recession, particularly as it does not have multiple pillars supporting it economy.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

If you’re wondering what will happen to property in 2020–2021 you are not alone.

You can trust the team at Metropole to provide you with direction, guidance and results.

In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.

If you’re looking at buying your next home or investment property here’s 4 ways we can help you:

Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! This will give you direction, results and more certainty. Click here to learn more

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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

'Latest property price forecasts revealed. What’s ahead in the next year or two?' have 53 comments

If it is for investment, I would avoid regional Australia for many reasons as discussed in many blogs on this site. Why fight the big trends of multiple pillars of economic growth and population growth – I would stick to the capital cities

Thank you for this very detailed article and for responding to the commenter above. I was looking into investing in the central coast but starting to think that might not be wise. I currently live in Sydney’s Northern beaches (its own micro-climate of a property market) and now thinking a unit in Newport or Dee Why would be the way to go. Can I get your 2 cents on that? Will also reach out to your company….

I can’t give you advice over the internet of course, I don’t know your circumstances, your budget, your timeframes or your risk profile. However please do reach out to my team at Metropole and would be happy to give you strategic advice

Dear Michael, Most property reports tend to miss outer-west Sydney. How are things looking for Penrith? You say off-plan is still falling? We bought off-plan (at least in the more ‘prestige’ area the Penrith)price fixed in late 2015 (but settled in late 2018) so at least hope the price went up before dropping. Perhaps it’s now worth what we paid for it? Could we expect any growth in say 5 years?

Nathan – sorry to hear you bought an apartment in Penrith – it’s an area that is likely to underperform over the next few years as it’s an area where the locals will have minimal wages growth.
As for an increase in value in your apartment, it really depends in which block you bought and how much you (over)paid.
Sorry – I don’t mean to be negative, I’m very positive for many parts of Sydney but not those outer suburbs

Thanks Michael. To be precise it’s in the Thornton area, right next to the train station. Not sure if it qualifies as the same kind of ‘high rise’ as Sydneysiders are worried about. Paid about $600k in 2015, come settlement date in 2018 they were re-selling for $650k, so I assume the price falls are to be taken from this peak? Tricky to work out but hope it may be holding its 2015 value.

Is the Western Sydney airport likely to have a positive effect on the outer suburbs? Happy to keep it longer term and would even move into it upon return from UK. Your reputation spreads far and wide! Thanks again, Nathan.

Thank you Michael, and in terms of the established apartment markets in Sydney, is there a certain number of levels you would not go near? For example is a unit complex with 20 units something that’s acceptable from an investment point of view?

Jon, remember most areas in Sydney are not what I’d call “investment grade” locations for example our research has identified less than 30 suburbs that we are prepared to invest in, then within those suburbs less than 5% of properties are investment grade. I don’t want to mislead you with hard and fast rules – are you currently looking to invest? What is your budget?

Your first home won’t be your forever home, but if you get it right it will be your steeping stone to building a portfolio of properties.
Get it wrong and it will be a mill stone around your neck.
Why not let my team at Metropole help you?

Thank you for your very detailed article. I specifically wanted to ask in regards to the following comment in your article:

“Sydney is currently offering investors an opportunity to buy established apartments in the eastern suburbs, lower north shore and inner west at a significant discount to what they would have paid a few years ago and the prospect of the market moving forward over the next few years.”

Is this alluding to steering away from high rise apartments in general? I was wondering in your reference to established apartments whether this meant the smaller apartment complexes in general.

You’re right it both cases Jon
Steer away for the new and off the plan complexes – many will become the slums of the future as they are tainted with all the structural issues. Others are steering clear, banks are scared, insurers are scared – many naive investors will lose oney in these over the next decade

Predicting the property market is just that! a Predication. I attended a real estate seminar 1 year before GFC and some guy asked the question, What happens if the banks fail! The experts on the panel “laughed” … the rest of the story has been told!

Haha. Predict all you want. Stats and all. My advice…just make sure your cashflow is in check, don’t rely on one income, have buffers in place and weather the storm. Everyone is accountable for their own actions and the circumstances you are in are a result of your choices. Whether that be because you planned ahead or you didn’t, and now realise that you can’t make the right moves when opportunity arises. Those who have structured their portfolios and lives correctly will see good and bad times as a win-win. And, if you want to continue furthering your education and invest in yourself… Get onto Grant Cardone. Study those who are the most successful in their field. Good luck to all, otherwise.

Interesting read and I’m glad I came across your very optimistic post and more importantly blog overall. Allow me to share a slightly more pessimistic view. I personally believe that it is still cheaper to rent than own in Australia in case of apartments if you calculated the holistic cost of owning and inflation. In my non expert view prices have to drop another 20ish % over the coming two years in Sydney and Melbourne. Why?
1) China (Australia’s biggest trading partner) and the US (third biggest trading partner) will likely go into recession within the next 12 months.
2) Australian government and the RBA changed legislation and interest rates respectively to allow large flows of foreign capital (mostly Chinese) to artificially inflate Australian prices unsustainably.
3) Housing ownership fell drastically from about 70% to below 65% since the Global Financial Crisis (GFC) in 2007/2008
4) Australia made it to a top ranking globally amongst all countries regarding the “household debt by GDP” (almost 123%)
5) Property prices increased over 100% in Sydney and Melbourne since the GFC, far outpacing the growth of average wages.
6) Chinese government has severely restricted Chinese capital to leave the country in 2017. And Chinese investors (together with speculative investors) were largely responsible for the inflation of the Australian housing market.
7) While 2018 showed a large amount of Interest Only (IO) expiring, 2019 will have the highest number mortgages that will need to be renewed. The recent change of heart of APRA to loosing restrictions on banks regarding IO lending will only slow down the correction.
8) Investor and PPOR homebuyer confidence is at an all time low and awareness of the perils of overleveraging and interest only rates is at an all time high.
9) With net rental yields at an all time low (3%) in capital cities thanks to high levels of taxations (some of the highest in the World) falling average rents will force some investors to sell part of all of their investment properties. If rental yields equal inflation of 2.7% you made no money at all while bearing all the risk and work associated with owning an investment property.
10) Affordability is a key concern for me: If the median income in say Melbourne is 80,610$ per annum, taxes and super takes shaves off some 23,409$ from the get go, average living expenses for a single person per year are 21,840$, and average rent expenses are in the ballpark of 18,040$ it would still take just shy of 10 years to save up for a deposit for an average house of 833,321$ (2018 Dec prices). All the meanwhile the person cannot fall sick, can’t take significant time off, can’t have children, have to live a pretty modest life and save nothing else but for the deposit. If the person has a partner they could probably make it in 3-4 years but still you cannot afford kids then or say a wedding.

It is strange how everybody in this country blames investors and builders for the high cost of houses, yet Australia’s cost of construction is 23% less than America and cheaper than most European cities however it has some of the most expensive lands in comparison to America and Europe, this is because state government’s artificially inflated land prices through blocking supply through planning delays and by adding taxes both state and federal, why do we not recognize that most houses are 40% higher because of these reasons, it is even stranger that governments point the finger at investors developers and builders for the reason for the high cost of housing when the problem is clearly policy set down by government that is the problem, GST, stamp duty, and many hidden charges that are really another form of tax, affordability for all Australians can happen if the government take a hard look at what they have created and stop burying there head in the sand, both Liberal and Labour state and Federal are complicit.

I am a migrant myself, I really appreciate there are so many opportunities in this country with wonderful people. Most people are trying to do the right things. I have worked and studied very hard in Australia and made a good life here like many migrants. The door to go back our own country is open every day, you choose to come and stay in Australia, so please be thankful for this country welcome you. Life is what you made of yourself. Please don’t blame this country. Please don’t expect free lunch and free housing as all our taxpayer, your fellow workers, has to work hard for your expectation. Let us all work hard as a team make this country greater for ourselves and our next generations.

I’ll take your predicted 13% increase for Brisbane, thanks. I have studied the stats and I think it will happen here IF the extra state immigration continues AND that all the approved inner city units are not ALL built.
We have sat up here in Queensland with low growth rates for many years (read affordable) while Sydney and Melbourne have boomed and now there so may negative comments about the continuing “correction” down there. They must all be Harry Dent followers! I managed to attend Harry Dent on his recent tour BUT don’t accept his predictions verbatim. He has some good models and supporting data BUT it has to be appropriately interpenetrated. I could be a cynic and say he just comes out here when he know we are in a downtrend so he can sell his books and newsletters.
I think Michale’s use of selected data providers is a much more balanced and rational.

Thank you for your article and comments Michael.We do need a 360 degree approach to make our predictions and columns like yours are of value, whether people agree or not. I feel Media has a lot to answer for, we do need to be honest here and recognise that its no coincidence that what Media creates is usually the outcome. We know this each time there is an election (or the desire to remove a Prime-minister to sure up your own interests). Since 2010 it has been said by many economist that the GFC did not need to happen in Australia, it was a reaction from what people read in the medias “predictions”. People in Australia panicked and stopped spending, which in turn,,, resulted in our economy slowing. There are experts in the USA saying for the past few years, that the big end of town players are itching (pushing) for another crash because it’s where they make huge investments by snapping up bargains, feeding off others losses. I’m certainly no expert, but I have to question where the truth lies. What has really changed since Dec 2017 to swing the housing market into a negative direction when employment numbers are up, interest rates are low, population growth is strong and people are still spending on unnecessary items? Tightening up leading had to be done. I just hope and pray people have the sense to not listen to media this time, (Media moguls with good mates at the top end of town wanting to shift dollars to create bigger tax right offs) and people keep spending as normal. When the purses of the every day consumers close the economy stops and its a slippery slope from there. No one has a crystal ball, last time a very small number of experts got their predictions right .

You are right Tony – Australia has 25 million property experts – everyone has an opinion don’t they?
And then there are some institutions with large research departments and the RBA. I know who’s opinions I’d rather trust

On one hand you blame the media and then use the very information reported through the media to support your argument, ie the QBE national house forecast. You cherry pick the data that supports your view but are missing real numbers and data that has already happened.
Fact: Sydney has dropped by 8.9% in the past 12 months
Fact: It’s the fastest decline in prices in 3 decades
Fact: It’s the second largest price correction since the 1990 recession
Fact: Prices and demand are still softening in Sydney
Fact: The auction clearance rate is the weakest since the GFC

There is alignment with Macquarie Bank, Westpac, AMP and ANZ that prices in Sydney will decline by 20% from peak to trough when this correction is all said and done. Also, Herron Todd White’s property clock points to a similar outcome and if you’re on the ground in Sydney property markets, you can see in real time the pull back from buyers.

Tighter lending practices are not abating and a federal election in the first half of next year will further suffocate activity and magnify the correction. Yes, many can ride the wave but the thought of a 3% increase by 2021 is unrealistic.

Sydney will be down at least 15% by Feb and this December will be a bloodbath as buyers dessert the market and leave a huge volume of sellers clambering to find a buyer pre-Christmas and in many cases will significantly drop prices to avoid having a listing move into 2019.

You can be the optimist but please don’t be the fool and ignore real facts about the Sydney market as it discredits all your information and makes it hard to believe anything you report. I’d think most would be happy if the market just stabilised by 2020.

Jim
You’re correct – some are predicting a blood bath – but they have been doing so for years. And I agree some segments of the Sydney property market will fall more than 20% – especially all those new apartments many of which were sold to unsuspecting investors. I’ve read the sources you’ve quoted and I’ve also read the comments from DR Phil Lowe – our RBA Governor – I don’t think he’s a fool – I’ll listen to him

Eyes off the blinkers,let’s not forget and factor in interest only loans rolling over to principle and interest. https://www.afr.com/news/economy/rba-flags-dangers-of-480b-in-interestonly-loan-resets-over-the-next-four-years-20180413-h0yppv

At least you are realistic about a mild softening of prices in the major capitals and a long overdue rise in Brisbane,unlike the doom and gloom people interviewed on 60 Minutes recently.Fear generating predictions about price falls goes on every few years and some so-called news and current events programs are irresponsible in making these out to be accurate forecasts from experts.

Agree with you on this – there is a lot of doom and gloom in the media at the moment.
Also, I like Michaels quote: Fact is: meteorologist tend to predict the weather better than property commentators predict future property capital growth. This is very true.

It’s a sorry reflection of the times we live in when we celebrate the rising cost of providing shelter for your family. The social cost of both parents having to work in order to afford a home – kids in daycare, less disposable income to put to into their development… this is the situation for so many families now. This inconvenient truth is happily ignored by those who profit in the current market, and while money it to be made it is unlikely to change.

Rastus I understand where you are coming from. But this is one of the prices we need to pay to be able to live in the best country in the world at the best time in history. Rather than lamenting it, we should be grateful the opportunities Australia offers

With due respect – basing your economy on deriving brain-drain and short term cash from third world country migrants, on one hand, and making it overly difficult for the locals to be able to afford dwelling…I see Australia going completely without wisdom and driven by greed. There is nothing about this to be referred in terms of being a ‘great country’.

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